TGB Regional Banking Monitor: Europe — Q4 2025

The regional picture

The fourth quarter of 2025 brought little change in euro area monetary policy; the shock came later. The ECB kept its three key interest rates unchanged on 18 December 2025, with the deposit facility rate at 2.00%. Its December staff projections put headline inflation at 2.1% in 2025 and 1.9% in 2026, and growth at 1.4% in 2025 and 1.2% in 2026. The euro area economy grew by 0.2% in the fourth quarter of 2025, driven by stronger domestic demand. Inflation was 1.9% in February 2026, up from 1.7% in January.

Outside the euro area, the Bank of England's Monetary Policy Committee held Bank Rate at 4% by a 5–4 vote at the meeting ending 5 November 2025, then cut it by 0.25 percentage points to 3.75%, again by 5–4, at the meeting ending 17 December 2025. Norges Bank kept its policy rate at 4% on 17 December 2025, after reductions earlier in 2025 that took it from 4.5%.

The war in the Middle East changed the outlook at the March 2026 meetings. The ECB said on 19 March 2026 that the war had made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for growth, and kept its rates unchanged. The Bank of England's minutes recorded that the Brent crude spot price had been over $100 per barrel in the run-up to its 18 March 2026 meeting, around 60% higher than at the time of its February Report. The SNB said its willingness to intervene in the foreign exchange market had increased, and the Riksbank said the war had caused a rise in short-term market interest rates.

Policy rates at the latest decision on or before 19 March 2026

Source: European Central Bank, Combined monetary policy decisions and statement, 19 March 2026, 19 March 2026; Bank of England, Bank Rate maintained at 3.75% - March 2026 Monetary Policy Summary and Minutes, 19 March 2026; Swiss National Bank, Monetary policy assessment of 19 March 2026, 19 March 2026; Sveriges Riksbank, Policy rate unchanged at 1.75 per cent, 19 March 2026; Norges Bank, Policy rate kept unchanged at 4 percent (January 2026), 22 January 2026.

Every central bank in the table held at its latest meeting, which points to a pause rather than a reversal of earlier easing.

Euro area banking system: capital up, earnings softer

The ECB's supervisory banking statistics, published on 18 March 2026, show the significant institutions it supervises directly ending 2025 with more capital and cleaner balance sheets. The aggregate CET1 ratio rose to 16.18% in the fourth quarter of 2025 from 16.10% in the third quarter and 15.97% a year earlier. That is a gain of 21bp over the year. The Tier 1 ratio was 17.68% and the total capital ratio 20.32%. Across countries the CET1 ratio ranged from 13.29% in Spain to 22.05% in Latvia.

Asset quality improved on every headline measure. The NPL ratio, excluding cash balances at central banks, fell to 2.18%, the lowest since the series was first published in 2020. The stock of NPLs fell by €2.78 billion while loans and advances rose by €146.92 billion, so the ratio fell by 4bp on the quarter. The NPL ratio for household loans was 2.11% and for loans to non-financial corporations 3.45%, both lower than in the third quarter. Stage 2 loans, those whose credit risk has increased significantly since origination, fell to 9.33% of the total from 9.49% in the previous quarter and 9.93% a year earlier. The weaker segments remain commercial property and small firms: the NPL ratio was 4.41% for loans collateralised by commercial immovable property and 4.73% for loans to small and medium-sized enterprises.

Profitability was the soft spot. Annualised return on equity fell to 9.53% in the fourth quarter from 9.88% in the third quarter, and was 9.54% a year earlier. The quarterly decline was 35bp. The aggregate net interest margin was 1.52%, against 1.50% in the third quarter but 1.60% in the fourth quarter of 2024. The cost-to-income ratio rose to 54.95% from 53.98% in the third quarter, while the cost of risk was steady at 0.47%. This suggests that the dip in returns in the fourth quarter came mainly from higher costs rather than from credit losses.

Liquidity strengthened. The aggregate liquidity coverage ratio rose to 158.60% from 156.71% in the third quarter. The loan-to-deposit ratio fell to 100.49% from 101.50%, the second-lowest value since the series began in 2015.

ECB-supervised banks: key indicators

Source: European Central Bank (ECB Banking Supervision), ECB publishes supervisory banking statistics on significant institutions for the fourth quarter of 2025, 18 March 2026; European Central Bank (ECB Banking Supervision), Supervisory Banking Statistics for significant institutions, Fourth quarter 2025, 18 March 2026.

### Credit conditions The ECB's January 2026 bank lending survey showed banks turning more cautious on corporate credit. Euro area banks reported an unexpected net tightening of credit standards for loans to enterprises in the fourth quarter of 2025, with a net percentage of 7% against the 1% they had expected. Standards eased slightly for housing loans, at a net percentage of -2%, but tightened for consumer credit, at 6%. Net demand for loans to firms rose slightly, by a net 3%, and for housing loans by a net 9%. For the first quarter of 2026, banks expected a moderate further net tightening of standards for firms. Lending volumes kept growing. Bank lending to firms grew by 2.8% year on year in January 2026, down from 3.0% in December, while mortgage lending grew by 3.0%. Bank lending rates for firms were 3.6% in January and the average rate on new mortgages edged up to 3.4%.

Germany: capital-rich, low-return

German significant institutions reported a CET1 ratio of 17.37% in the fourth quarter of 2025, above the euro area aggregate of 16.18%. Their return on equity, however, was the lowest of any country reported, at 6.38%, with a net interest margin of 1.07% and a cost-to-income ratio of 59.42%. The NPL ratio was 1.85%, below the aggregate. The weak point is commercial property: the NPL ratio for loans to firms collateralised by commercial immovable property was 7.11% in Germany, against 4.41% across the system.

The largest banks did better than the system average. Deutsche Bank reported a 2025 profit before tax of €9.7 billion, up 84% on 2024, and a net profit of €7.1 billion, about double the previous year. Its post-tax return on tangible equity was 10.3%, up from 4.7% in 2024, and provisions for credit losses fell 7% to €1.7 billion. Its CET1 ratio was 14.2% at the end of 2025, against 13.8% a year earlier, but it fell from 14.5% during the fourth quarter, largely because of anticipated regulatory impacts. Commerzbank reported a 2025 net result of €2,625m, against €2,677m in 2024, after restructuring expenses of €562m. Its net return on tangible equity was 8.7%, its NPE ratio was unchanged at 1.1% and its CET1 ratio was 14.7% at 31 December 2025.

France: thin margins, high costs

French significant institutions reported a net interest margin of 0.93% in the fourth quarter of 2025 and a cost-to-income ratio of 66.56%. Return on equity was 6.40% and the CET1 ratio 16.09%. The NPL ratio was 2.50%, and the NPL ratio on consumer credit was 5.58%, above the system's 5.39%.

BNP Paribas reported 2025 net income attributable to the group of €12,225m, up 4.6%, and a return on tangible equity of 11.6%. Its CET1 ratio was 12.6% at 31 December 2025, against a SREP requirement of 10.52%. It confirmed a 2026 return on tangible equity objective of 12%.

Italy: high returns and a one-off levy

Italy combined a net interest margin of 2.03% with a return on equity of 13.77% and a return on assets of 1.24% in the fourth quarter of 2025. The CET1 ratio was 15.85% and the NPL ratio 2.15%.

UniCredit reported FY25 net profit of €10.6 billion, up 14%, and a return on tangible equity of 19.2%. Its CET1 ratio was 14.7%, its net NPE ratio 1.6% and its FY25 cost of risk 15bp. It set FY25 distributions of €9.5 billion, of which €4.75 billion in cash dividends. Intesa Sanpaolo reported 2025 net income of €9,321m, up 7.6% from €8,666m. Its CET1 ratio was 13.9%, after negative impacts of around 40bp from Basel 4 and around 20bp from the one-off levy on the "excess profits reserve". Its NPL ratio under the EBA methodology was 0.8% net and 1.5% gross. The levy shows that national fiscal measures, alongside prudential rules, can move Italian banks' capital ratios.

Spain and Portugal: high returns, thinner capital in Spain

Portugal and Spain were among the most profitable banking systems in the euro area. Spanish significant institutions reported a return on equity of 14.57%, a net interest margin of 2.60% and a cost-to-income ratio of 43.46% in the fourth quarter of 2025. Portugal had the highest return on equity in the ECB data, at 15.37%, with a cost-to-income ratio of 36.08%. Spain also had the lowest CET1 ratio, at 13.29%, and a cost of risk of 0.96%, against 0.47% for all significant institutions. Its NPL ratio was 2.77%; household loans had an NPL ratio of 3.54%, and consumer credit 6.81%.

Santander reported 2025 attributable profit of €14,101 million, up 12%, a return on tangible equity of 16.3% and a CET1 ratio of 13.5%. Its efficiency ratio improved to 41.2%. The group is selling Santander Bank Polska to Erste Group, with the capital gain expected in 2026. The quarter also ended BBVA's attempt to take over Banco Sabadell, as the offer lapsed on 16 October 2025 after being accepted by holders of 25.5% of the voting rights, below its minimum acceptance condition.

Benelux and the Nordics

Dutch significant institutions reported a CET1 ratio of 16.57%, a return on equity of 9.84% and a cost of risk of 0.17% in the fourth quarter of 2025. Belgian banks reported a CET1 ratio of 18.22% and a return on equity of 10.72%. ING reported an FY2025 net result of €6,327 million, a full-year return on equity of 13.2% and a CET1 ratio of 13.1%. Its net core lending grew by €57 billion, or 8%, in 2025.

In the Nordics, Finnish significant institutions reported a return on equity of 12.48%, a cost of risk of 0.07% and a CET1 ratio of 18.13%. Nordea reported a 2025 net profit of €4,840m, against €5,059m in 2024, and a return on equity of 15.5%. Its net interest income fell 5% year on year in the fourth quarter following policy rate reductions, and its CET1 ratio of 15.7% was 1.9 percentage points above its regulatory requirement. On policy, the Riksbank held at 1.75% in March 2026 and said it expected the rate to remain there for some time. Norges Bank held at 4% in January 2026, and its December forecast was consistent with one to two rate cuts in 2026.

United Kingdom: a lower capital benchmark

UK policy eased in the quarter: Bank Rate was cut to 3.75% in December 2025 and held there in February and March 2026. The Committee said in December that Bank Rate had been cut by 150 basis points since August 2024. CPI inflation had eased to 3.2% in November 2025 from 3.8% in September. In February 2026 four members voted to cut to 3.5%, but in March the vote to hold was unanimous.

The Financial Policy Committee's December 2025 Financial Stability Report judged that risks to financial stability had increased during 2025, and that many risky asset valuations were materially stretched, particularly for AI-focused technology companies. It also cut its benchmark for system-wide Tier 1 capital requirements to around 13% of risk-weighted assets, equivalent to a CET1 ratio of around 11%, from around 14%. In the 2025 Bank Capital Stress Test, the aggregate CET1 ratio of participating banks fell from 14.5% to a low point of 11.0%, and no bank was required to strengthen its capital position. That is a drawdown of 3.5 percentage points. The countercyclical capital buffer stayed at its neutral rate of 2%, and mortgage lending growth had risen to 3.2% year on year.

Barclays reported FY25 profit before tax of £9,139m, against £8,108m in FY24, and a return on tangible equity of 11.3%. Its CET1 ratio was 14.3% at December 2025, up from 13.6% a year earlier. HSBC reported 2025 profit before tax of $29.9bn, down $2.4bn mainly because of notable items, a return on tangible equity of 13.3%, or 17.2% excluding notable items, and a CET1 ratio of 14.9%.

Switzerland: capital rules for UBS

The SNB left its policy rate at 0% on 19 March 2026 and said it was more willing to intervene in the foreign exchange market to counter a rapid and excessive appreciation of the franc. Its conditional inflation forecast was 0.5% for 2026, 0.5% for 2027 and 0.6% for 2028. Inflation had risen from 0.0% in November to 0.1% in February.

The main banking issue was capital. On 26 September 2025 the Federal Council launched a consultation under which systemically important banks would have to provide full capital backing for their participations in foreign subsidiaries; the consultation ran until 9 January 2026. CET1 backing would start at 65% when the provision enters into force and rise by 5 percentage points a year until it reaches 100%. The Federal Council said it would launch the consultation on the remaining measures in the first half of 2026. UBS reported FY25 net profit of $7.8bn, up 53%, a return on CET1 capital of 10.8% and a CET1 capital ratio of 14.4%.

Cross-country comparison

Euro area significant institutions by country, Q4 2025

Source: European Central Bank (ECB Banking Supervision), Supervisory Banking Statistics for significant institutions, Fourth quarter 2025, 18 March 2026; European Central Bank (ECB Banking Supervision), ECB publishes supervisory banking statistics on significant institutions for the fourth quarter of 2025, 18 March 2026.

The table shows an inverse pattern between capital and returns at the extremes. Germany and France combine CET1 ratios close to or above the aggregate with returns on equity of 6.38% and 6.40%, while Spain combines the lowest CET1 ratio, 13.29%, with a return on equity of 14.57%. The Spanish CET1 ratio is 2.89 percentage points below the aggregate. Margins account for much of the difference: the net interest margin in Spain is 2.60%, against 0.93% in France.

Large European banks: 2025 results

Source: Deutsche Bank AG, Deutsche Bank hits 2025 financial targets with record full-year and fourth-quarter profits (media release), 29 January 2026; Commerzbank AG, Commerzbank achieves record operating result (2025 annual results press release), 11 February 2026; BNP Paribas, Fourth quarter and full-year 2025 results press release, 5 February 2026; UniCredit S.p.A., UniCredit: 4Q25 and FY25 Group results (press release), 9 February 2026; Intesa Sanpaolo S.p.A., Intesa Sanpaolo: consolidated results as at 31 December 2025 (press release), 2 February 2026; Banco Santander S.A., Santander delivers record full-year results, adding eight million customers to 180 million, with earnings per share up 17%, 3 February 2026; ING Groep N.V., ING posts FY2025 net result of EUR 6,327 million (4Q/FY2025 press release), 29 January 2026; Nordea Bank Abp, Fourth-quarter and full-year results 2025 (financial statement release), 29 January 2026; Barclays PLC, Barclays PLC 2025 Results Announcement, 10 February 2026; HSBC Holdings plc, HSBC Holdings plc 2025 results (media release), 25 February 2026; UBS Group AG, UBS reports net profit of USD 1.2bn in 4Q25 and USD 7.8bn in FY25 (UBS Group AG media release, ad hoc announcement), 4 February 2026.

Measures differ by bank and are shown as each bank reports them, so the table compares orders of magnitude rather than like-for-like ratios.

Regulation and supervision

The ECB's 2025 Supervisory Review and Evaluation Process, covering 105 directly supervised banks, kept overall CET1 requirements and guidance for 2026 broadly stable at 11.2%, with the CET1 Pillar 2 requirement at 1.2%. Non-binding Pillar 2 guidance for 2026 fell from 1.3% to 1.1%. The ECB's supervisory priorities for 2026-28 focus on banks' resilience to geopolitical risks and macro-financial uncertainties, and on operational resilience and IT capabilities.

On 11 December 2025 the ECB published recommendations from its High-Level Task Force on Simplification, endorsed by the Governing Council, for presentation to the European Commission. They include merging the existing layers of capital buffers into two, one non-releasable and one releasable, and cutting the leverage ratio framework from four elements to two: a 3% minimum and a single buffer. Together with the Bank of England's lower capital benchmark, this points to a shift in emphasis in European policy from adding capital towards simplifying the framework.

The euro area also grew. Bulgaria introduced the euro on 1 January 2026, becoming the 21st member, at a conversion rate of 1.95583 lev per euro. The ECB now directly supervises four significant institutions in Bulgaria and oversees 17 less significant institutions there.

For capital across the wider EU, the European Banking Authority reported in December 2025 that the CET1 ratio of EU/EEA banks had reached an all-time high of 16.3% in the second quarter of 2025, with headroom above requirements of nearly 500bp. It noted that a decline in net interest income had been offset by other income and that the cost of risk was averaging around 50bp.

Risks and outlook

The ECB's November 2025 Financial Stability Review described the euro area banking sector as resilient, with strong profitability and ample capital and liquidity buffers. It warned that exposures to tariff-sensitive firms and stronger funding ties with non-banks could strain banks during periods of economic or market stress, and that stretched valuations in concentrated asset markets raised the risk of sharp price adjustments. The EBA added that third-country exposures to non-bank financial intermediaries were rising.

The war in the Middle East is the new test. The ECB's March 2026 baseline has headline inflation averaging 2.6% in 2026, up from 1.9% in its December projections, and growth of 0.9% in 2026, down from 1.2%. It said overall financial conditions had tightened since its previous meeting, with stock markets lower and short-term market interest rates notably higher. The ECB said it was not pre-committing to a particular rate path.

For banks, the direct effects could run in two directions. Higher short-term market rates could support net interest margins, while weaker growth and tighter credit standards could weigh on loan demand and asset quality. The starting point is an aggregate net interest margin of 1.52%, up from 1.50% in the third quarter, an NPL ratio of 2.18%, and NPL ratios of 4.41% on loans collateralised by commercial property and 4.73% on loans to smaller firms. With a CET1 ratio of 16.18% and liquidity coverage at 158.60%, euro area banks enter this period with buffers well above their requirements.

Primary sources: European Central Bank (ECB Banking Supervision), ECB publishes supervisory banking statistics on significant institutions for the fourth quarter of 2025, 18 March 2026; European Central Bank, Combined monetary policy decisions and statement, 19 March 2026, 19 March 2026; Bank of England, Bank Rate maintained at 3.75% - March 2026 Monetary Policy Summary and Minutes, 19 March 2026; Swiss National Bank, Monetary policy assessment of 19 March 2026, 19 March 2026; Sveriges Riksbank, Policy rate unchanged at 1.75 per cent, 19 March 2026; European Central Bank, January 2026 euro area bank lending survey, 3 February 2026; UniCredit S.p.A., UniCredit: 4Q25 and FY25 Group results (press release), 9 February 2026; Banco Santander S.A., Santander delivers record full-year results, adding eight million customers to 180 million, with earnings per share up 17%, 3 February 2026; European Central Bank, Monetary policy decisions, 18 December 2025, 18 December 2025; Bank of England, Bank Rate maintained at 4% - November 2025 Monetary Policy Summary and Minutes, 6 November 2025; Bank of England, Bank Rate reduced to 3.75% - December 2025 Monetary Policy Summary and Minutes, 18 December 2025; Norges Bank, Rate decision December 2025: Policy rate kept unchanged at 4 percent, 18 December 2025; Norges Bank, Policy rate kept unchanged at 4 percent (January 2026), 22 January 2026; European Central Bank (ECB Banking Supervision), Supervisory Banking Statistics for significant institutions, Fourth quarter 2025, 18 March 2026; Deutsche Bank AG, Deutsche Bank hits 2025 financial targets with record full-year and fourth-quarter profits (media release), 29 January 2026; Commerzbank AG, Commerzbank achieves record operating result (2025 annual results press release), 11 February 2026; BNP Paribas, Fourth quarter and full-year 2025 results press release, 5 February 2026; Intesa Sanpaolo S.p.A., Intesa Sanpaolo: consolidated results as at 31 December 2025 (press release), 2 February 2026; BBVA, BBVA to accelerate shareholder remuneration following the lapse of its offer for Banco Sabadell, 16 October 2025; ING Groep N.V., ING posts FY2025 net result of EUR 6,327 million (4Q/FY2025 press release), 29 January 2026; Nordea Bank Abp, Fourth-quarter and full-year results 2025 (financial statement release), 29 January 2026; Bank of England, Bank Rate maintained at 3.75% - February 2026 Monetary Policy Summary and Minutes, 5 February 2026; Bank of England, Financial Stability Report - December 2025, 2 December 2025; Barclays PLC, Barclays PLC 2025 Results Announcement, 10 February 2026; HSBC Holdings plc, HSBC Holdings plc 2025 results (media release), 25 February 2026; Swiss Federal Council (Federal Department of Finance), Federal Council launches consultation on the capitalisation of foreign participations by parent companies of systemically important banks, 26 September 2025; UBS Group AG, UBS reports net profit of USD 1.2bn in 4Q25 and USD 7.8bn in FY25 (UBS Group AG media release, ad hoc announcement), 4 February 2026; European Central Bank (ECB Banking Supervision), ECB keeps capital requirements broadly stable for 2026 amid persisting global challenge, 18 November 2025; European Central Bank, Governing Council proposes simplification of EU banking rules, 11 December 2025; European Central Bank, Bulgaria introduces the euro, 1 January 2026; European Banking Authority, Risk Assessment Report of the European Banking Authority, December 2025, 31 December 2025; European Central Bank, Financial stability vulnerabilities remain elevated given uncertainty over geoeconomic trends and tariffs impact (Financial Stability Review, November 2025), 26 November 2025.